UPDATED 11:05 a.m. Saturday

The Supreme Court of Canada is unanimous — Citadel Hill is not worthless.

The top court Friday threw out Ottawa’s position that most of the historic downtown Halifax landmark was worth just a few bucks.

Halifax municipal staff expect the ruling will mean an extra $500,000 a year from Ottawa and there is also a bill for past underpayments of about $8 million.

Ottawa and Halifax have been locked in a dispute over the value of Citadel Hill since the 1990s.

The federal government makes payments in lieu of taxes to Halifax that are based on the value of the land.

Ottawa claimed the grassy slope that makes up the vast majority of the hill had no value because, as a national historic site, it could not be developed. The feds said 18.8 hectares of the 19.4-hectare site was worth just $10.

Halifax argued that even if the hill couldn’t be developed, it has great value to the community as a historic site. The municipality said the land was worth $19 million.

The federal public works minister does have the discretion to decide how much Ottawa pays, but the Supreme Court ruled 9-0 that the minister must base his decision on real-life assessments.

“The minister cannot base his valuation on a ‘fictitious tax system’ that he himself has created, but that is exactly what happened in this case,” Justice Thomas Cromwell wrote on behalf of the court.

The court found Ottawa’s position unreasonable for a second reason.

It is unconstitutional for the federal government to pay provincial or municipal taxes on land it owns. But it still costs the municipality money to provide basic services to those lands. So, in the principle of fairness, Ottawa passed the Payments in Lieu of Taxes Act to compensate the municipalities.

The chief justice found the $10 valuation to be fundamentally unfair, which contravenes the act.

“It can hardly be thought either fair or equitable to conclude that (19.4 hectares) in the middle of a major metropolitan centre has no value for assessment purposes,” reads the ruling.

The ruling will send Ottawa back to the table to work out a new value for Citadel Hill based on assessments, said Dan Campbell of Cox and Palmer, who represented Halifax in the case.

“I’d like to think that they’ll be able to agree now that the ground rules are clearer, and if they’re unable to agree then there will be a new dispute advisory panel,” Campbell said.

The ruling will create adjustments to what Ottawa has paid Halifax all the way back to 1994, said Campbell.

The decision was welcomed by Halifax Mayor Peter Kelly.

“We’re certainly extremely pleased that the highest court in the land has agreed with our determination that the federal government owes a duty of fairness, not only to our taxpayers within Halifax Regional Municipality but to all municipalities across the country,” he said.

“This is a key decision that has far-reaching implications or ramifications for all municipalities.”

The municipality has several other national historic sites within its boundaries, but Kelly said Citadel Hill was the one the city thought was undervalued.

“We will certainly use this decision to review other (sites) to see if there are any other implications that may be beneficial to our taxpayers,” he said.

The fact the Supreme Court awarded costs to the municipality is another indicator of how strong in favour of the city the court’s decision was, the mayor said.

He doesn’t know what the city’s costs will be for the five-year court battle, but said they would be in the thousands of dollars.

What will happen to the $8 million it estimates it is owed in back taxes and the extra $500,000 a year in the future will be figured out at budget time, Kelly said.

“It’s a lot of money, no matter how you cut it,” he said. “(It) has a lot of demands being called upon it, so it will certainly help going forward and certainly help recapture what has been lost in the past.”

However, he said the municipality won’t “count our chickens before they hatch, so we’ll wait and see what amount that evaluation will bring and determine the best approach from there.”

A spokeswoman for the federal Public Works Department said they are giving careful consideration to the implications of the decision but did not say what their next step will be.

In an effort to settle the long-simmering dispute, Halifax in 2007 took Ottawa to a dispute advisory panel. The panel sided with the federal government, ruling the historic site, excluding the fort in the centre, was worth just $10.

Halifax appealed and in June 2009 a federal court judge overturned the ruling.

Ottawa then filed its own appeal. In July 2010, the Federal Court of Appeal, split two judges to one, ruled in favour of Ottawa’s position.

Halifax appealed to the Supreme Court of Canada, which heard the matter last December.

(pmcleod@herald.ca)

(ifairclough@herald.ca)